Squad Co is an international airline which flies to destinations all over the world. Squad Co experienced strong initial growth but in recent periods the company has been criticised for under-investing in its non-current assets.
Extracts from Squad Co's financial statements are provided below.
Statements of financial position as at 30 June:
Property, plant and equipment 317,000 174,000
Intangible assets (note ii) 20,000 16,000
Inventories 580 490
Trade and other receivables 6,100 6,300
Cash and cash equivalents 9,300 22,100
Total current assets 15,980 28,890
Total assets 352,980 218,890
Equity and liabilities
Equity shares 3,000 3,000
Retained earnings 44,100 41,800
Revaluation surplus 145,000 Nil
Total equity 192,100 44,800
6% loan notes 130,960 150,400
Trade and other payables 10,480 4,250
6% loan notes 19,440 19,440
Total current liabilities 29,920 23,690
Total equity and liabilities 352,980 218,890
Other EXTRACTS from Squad Co's financial statements for the years ended 30 June:
Revenue 154,000 159,000
Profit from operations 12,300 18,600
Finance costs (9,200) (10,200)
Cash generated from operations 18,480 24,310
The following information is also relevant:
1. Squad Co had exactly the same flight schedule in 20X7 as in 20X6, with the overall number of flights and destinations being the same in both years.
2. In April 20X7, Squad Co had to renegotiate its licences with five major airports, which led to an increase in the prices Squad Co had to pay for the right to operate flights there. The licences with ten more major airports are due to expire in December 20X7, and Squad Co is currently in negotiation with these airports.